Inquiry into China insurance firm rattles industry

WangShenlu

BEIJING (Caixin Online) — A fraud investigation into Shanghai’s largest insurance dealer has roiled the country’s insurance industry, prompting the regulator to meet and order closer scrutiny of such firms.

Chen Yi, the general manger of Fanxin Insurance Agency Co., was escorted from Fiji back to China by Chinese police on Aug. 19, Xinhua reported.

On Aug. 15, the Shanghai branch of the China Insurance Regulatory Commission (CIRC) said the company was selling unauthorized fixed-income financial agreements.

About Caixin
Caixin is a Beijing-based media group dedicated to providing high-quality
and authoritative financial and business news and information through
periodicals, online and TV/video programs.
• Get the Caixin
e-newsletter

A source close to the company said Fanxin engaged in sales fraud to get high commission fees from insurance companies. Public security officials in Shanghai said they received reports on Aug. 12 that Chen had left the country with 500 million yuan ($81.7 million). They haven’t been able to confirm that figure.

CIRC held a meeting on Aug. 15 to discuss the Fanxin episode, and it required its bureaus to inspect insurance dealers.

Established in 2007, Fanxin started to focus on life insurance in 2010 and aggressively expanded. In 2011, it clinched new insurance contracts with premiums totaling 150 million yuan
USDCNY, +0.0000%
Last year, revenue from premiums hit 480 million yuan.

However, the source said Fanxin has been selling several kinds of wealth management products that it developed without the necessary authorization. Some of the products had above-average yields.

“Customers thought they were buying the normal wealth management products like the ones offered by banks, but actually these products were made by Fanxin and funds were put into insurance products,” the source said.

The source said Fanxin also persuaded customers to buy insurance contracts as investment instruments.

Caixin Online

Chen Yi, the general manger of Fanxin Insurance Agency Co.

“Many customers now hold insurance contracts with other people’s names on them,” he said.

The company used the money people invested to buy new insurances products — or it just forged new insurance contracts — for the huge commission fees insurers paid, the source said. Fanxin usually asked for more than 100% of the first premium payment as commission fee for new contracts.

To attract investors, Fanxin offered yields of up to 20%. “Such a high yield promise is definitely unsustainable,” the insider said.

Helping hands

Insurance companies and banks are also taking heat for Fanxin’s behavior.

Some of the forged insurance contracts used fake contact information that could have been easily detected, but insurance companies ignored the problems for the sake of premium revenues, the source close to the company said.

Sunshine and Sun Life Everbright have terminated their partnership with Fanxin. A second source said that “Happy Life and Kunlun Health have the most cooperation with Fanxin, while the cooperation of others was small.”

The CIRC investigation also found that some of Fanxin’s wealth management products were sold via banks.

“More than 10 customers said they bought the contracts from banks and had no idea that they were sold on behalf of an insurance agent,” a CIRC official said. “Why did the banks allow their wealth management centers to sell such products?”

Chen played a crucial role in Fanxin’s business model. She worked for Pacific-Antai Life Insurance Co. from 2004 to 2009, then joined Fanxin, pushing for its transformation.

Before she joined the company, Fanxin mainly focused on property insurance and was little known even in Shanghai. However, by last year, it had become the city’s largest dealer of life insurance.

The first source close to the company said Chen is no longer the legal representative of the company. Jiang Jie, the company’s deputy general manager, has disappeared.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.